New Business Models: Why Retailers Must Go on the Offensive

Retailers are innovating to survive, but as customer expectations continue to shift and change, it’s clear this isn’t enough. The solution? Innovate to thrive…

Everyone knows retailers must disrupt or risk being disrupted. But what does that actually mean?

One thing is certain: it doesn’t mean doing what everyone else is doing. Today, 80% of all retail innovation is defensive; focused on copying what “pioneer” brands are doing in a bid to remain relevant. It’s innovation as survival strategy.

But rather than innovating to survive, retailers need to innovate to thrive – and that takes more than trying to “be like Amazon”. It means getting under the skin of what your own customers really want, need and appreciate – and adapting your business model to deliver it better than anyone else.

March of the business models

What do I mean by a business model? At its most basic, it’s the way you deliver your goods and services to your customers – the platform, the pricing and the experience.

The most exciting retailers around today are those offering a fresh approach to a familiar model. They’ve studied and listened to their customers, and are focusing on delivering the kind of experience those customers can’t get anywhere else.

Look at how companies like Enclothed, Forge and Vinyl Me, Please are successfully innovating with the experience, on-demand and subscription models respectively.

Enclothed handpick your new wardrobe based on preference, Forge frees employees and retailers to work and hire on-demand, while Vinyl Me, Please delivers exclusive LP pressings to subscribers each month with an original cocktail recipe to match the album’s theme.

10 new business models have been identified as gaining traction with modern shoppers:

Source: “Digital Transformation”, Caudron & Van Peteghem

So, what’s stopping traditional retailers from pioneering new models? In our experience, there are two key barriers: an over-focus on cost, and a reluctance to rethink the role of IT.

Cheaper is not (always) better

The wafer-thin margins in traditional retail have led to a “least cost” mindset. Why air-freight goods when it’s cheaper to ship by sea? Why equip store associates with iPads when there’s already point of sale equipment in every store?

But in the new world of retail, this attitude isn’t sustainable. Both decisions keep costs down, but create an inferior customer experience. In the shipping case, shoppers must wait weeks to get the latest goods, and in store, they must wait in a queue to pay or ask about an item that’s out of stock.

That may have been acceptable when there was no alternative. But today’s customers gravitate to retailers that can give them fast, seamless service and a smooth and enjoyable browsing or buying experience.

Fast-fashion brands that fly in new collections by air have won out over more traditional retailers that ship clothes by sea. Stores where tablet-toting associates know your buying history, and can quickly recommend and locate items for you – and take payment there and then – win out over stores where there’s a long queue for the till.

Rethink the role of IT

The second barrier to innovation is a reluctance to rethink the role of IT in the business model. In the age of the digital shopper, the winning retailers are those that behave like technology startups, with digital tech acting as the entire engine of the business.

Yet for many traditional bricks and mortar retailers, average IT expenditure remains at a tiny 2% of revenue. Even at some of the older online retailers, it’s only 6%.

Technology – and shoppers’ needs – move fast, and retailers can no longer afford to think of IT as a support function, or as capital expenditure to be budgeted for annually and depreciated over years. Tech investment must be fast-moving and flexible, with opex budget for experimenting with new delivery models, and for digital services – including Amazon’s – that can be purchased on-demand.

Without a rethink of IT strategy, there’s every chance shadow IT will emerge. Because if you’re not meeting your staff’s IT needs, you can bet they’ll find a way to get the job done on their own terms.

Low-risk experimentation

But it doesn’t have to be all or nothing. There are low-risk ways to experiment before switching to a new technology-enabled business model. Many retailers are taking a leaf out of Fintech’s book: using innovation labs, accelerators and co-ventures with tech partners to explore new models before committing to them.

DXC, for example, has innovation partnerships with a number of retailers to explore the potential of technological advances like digital shelves and robotics. It’s a quick and safe way to experiment with different approaches, and create a business case for investment.

Be ready for continuous change

One final thought. Reinventing a business model isn’t a once-and-done exercise. What’s fresh and innovative today can be mainstream by tomorrow. That’s the lesson being learned the hard way by retailers like Whole Foods and TJ Maxx; both leading brands who enjoyed Wall Street adoration with their organic and off-price models respectively. But as mainstream retailers began to cash in on their winning approach, their lustre has quickly faded.

Keep tabs on emerging business models with DXC’s Innovation Model

Today, the business models most popular with consumers are based on subscription, experience, on-demand, and freemium. But as the landscape shifts, retailers will need to keep abreast of what’s coming next.

DXC’s retail innovation model will keep you up to date with new and emerging business models – as well as the digital techniques and technologies underpinning them. Explore it today at http://www.innovation-model.com/.

Author: Neale Almond

Neale Almond is Retail Transformation Consultant at DXC Technology. Neale has a background of 35 years’ experience in IT, including being a very experienced IT and Change Programme Manager and SAP Solutions Architect.

Neale’s current responsibilities are about turning business ideas and strategy into technology deliverables for retailers. Whilst finding the route of maximum value for retailers, their customers, and – bridging the two – the retail workforce.